🕐01.11.12 - 15:54 Uhr

INVESTEC: COAL OF AFRICA - PRODUCTION SOLID, BUT LOW SALES REFLECT SOFT MARKET CONDITIONS - BUY



Coal of Africa The 1Q13 report reflected the difficult market conditions that CZA had highlighted in recent months.

While no financials were provided, sales were down markedly on the previous quarter and CZA states that focus remains on reducing operating losses.

Meanwhile, the previously highlighted $100m investment by Beijing Haohua Energy remains in an approvals process.

CZA’s attraction lies in its longer-term asset base and the proposed strategic partnership with Haohua should facilitate realising the value in these. * While total coal production improved 11% on the previous quarter to 955kt, sales were down 29% to 621kt as CZA faced softer market conditions and temporary delivery issues.

Export sales were down 45% to 225kt and CZA’s focus remains on reducing operating losses.

* We recently revised our coal price assumptions, with short to medium-term thermal prices down by an average 6% and metallurgical prices down an average 12%, offset to some extent by a weaker forecast ZAR FX rate, down an average 5%.

Together with adjustments to our production profile post the 1Q13 report, this has had the impact of reducing our FY13E EPS from negative 7.5cps to negative 8.1cps and FY14E EPS from 0.2cps to negative 0.8cps.

Our risked NPV has actually increased from 36p to 37p per share, reflecting an increase in our long term thermal coal price from US$90/t to US$95/t and a weaker Rand FX rate.

* Our target price remains underpinned by the diluted, risked NPV valuation, currently 37p per share.

Note that this NPV is primarily underpinned by CZA’s development assets and its cash, with the production assets representing only 5% of the overall value.

It is therefore very much an asset play.

Maintain Buy for high risk coal exposure.
To access the full note please click here Analysts: Europe: Hunter Hillcoat +44 (0)20 7597 5182 South Africa: Albert Minassian +27 11 291 6176 Australia: Tim Gerrard +61 2 9293 2168
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